Accounting (0452) · Oct/Nov 2013 · Question paper 22

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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
International General Certificate of Secondary Education

*4102705838*

ACCOUNTING

0452/22
October/November 2013

Paper 2

1 hour 45 minutes
Candidates answer on the Question Paper.
No Additional Materials are required.
READ THESE INSTRUCTIONS FIRST
Write your Centre number, candidate number and name on all the work you hand in.
Write in dark blue or black pen.
You may use a soft pencil for any diagrams or graphs.
Do not use staples, paper clips, highlighters, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.
Answer all questions.
You may use a calculator.
Where layouts are to be completed, you may not need all the lines for your answer.
The businesses mentioned in this Question Paper are fictitious.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 19 printed pages and 1 blank page.
IB13 11_0452_22/FP
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2
1

Saira Rehman maintains a petty cash book using the imprest system. Her imprest amount
is $200.
On 1 October 2013 she had $56 in the petty cash box.
Saira Rehman’s transactions for the month of October 2012 were as follows:
October 1
4
10
14
18
23
28

Restored petty cash to imprest amount
Bought stamps and stationery
Received cash from employee for
personal postage costs
Paid Abdul Shakeel, a credit supplier
Bought tea and coffee
Paid Syed Arshad, a credit supplier
Paid cleaners

$
?
19
3
34
9
16
80

(a) Enter the above transactions in Saira Rehman’s petty cash book on the page opposite.
Balance the petty cash book at 31 October 2013 and carry down the balance.
Make the entry on 1 November 2013 to restore the petty cash to the imprest amount.
[12]
(b) State where the double entry would be completed for the items recorded in the ledger
account column of Saira Rehman’s petty cash book.

[2]

(c) State where the double entry would be completed for the transaction on 10 October.

[2]

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$

Total Received

Date

Details
$

Total Paid
$

Postage &
stationery

Saira Rehman – Petty Cash Book

$

Catering
supplies
$

Cleaning
$

Ledger
accounts

3

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4
Saira Rehman is concerned that her working capital on 1 October 2013 was lower than on
the same date in 2012.
(d) Explain what is meant by working capital.

[2]

(e) State and explain the effect of each of the following transactions on Saira Rehman’s
working capital. The first one has been completed as an example.
Transaction

Purchased equipment,
$2000, and paid by cheque.

Effect on working
capital

Decrease by $2000

Reason

The bank balance will
decrease by $2000 and so
the working capital will also
decrease by the same
amount.

Returned damaged goods,
$35, to Annie Khan, a credit
supplier.

Paid Loans & Co $2015,
representing repayment of a
$2000 short-term loan and
$15 interest.

Received a cheque for $190
from Uzma Ali, a credit
customer, in full settlement of
$200 owing.
[6]
[Total: 24]

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2

Paul Matanga is a trader who sells on both cash and credit terms. His financial year ends
on 31 July.

For
Examiner's
Use

He maintains a provision for doubtful debts. On 1 August 2012 the provision for doubtful
debts amounted to $1200.
Paul Matanga wrote off bad debts totalling $420 during the eleven months to 30 June 2013.
On 1 July 2013 Susan Kunaka, a debtor, owed Paul Matanga $20.
Paul Matanga’s transactions for July 2013 included the following.
July 4

Sold goods on credit to Susan Kunaka, list price $240, less 20% trade
discount

16

Received cash, $103, from XY Stores, whose debt had been written off in
March 2011

24

Susan Kunaka sent a cheque for $150 and a letter to say that she was
unable to pay the balance of her account

30

Wrote off the balance of Susan Kunaka’s account as a bad debt

31

Adjusted the provision for doubtful debts so it was equal to 3% of the trade
receivables which totalled $28 000

(a) Write up the following accounts in Paul Matanga’s ledger for the year ended
31 July 2013. Balance the accounts where necessary and bring down the balances on
1 August 2013.
(i)

Susan Kunaka account

[3]
(ii)

Bad debts account

[3]

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(iii)

Bad debts recovered account

For
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[2]

(iv)

Provision for doubtful debts account

[4]

(b) Paul Matanga failed to enter the adjustment to the provision for doubtful debts in his
income statement for the year ended 31 July 2013.
Complete the following table to indicate how this error would affect the profit for the
year and the current assets at 31 July 2013.
Overstated
$

Understated
$

Profit for the year ended 31 July 2013
Current assets at 31 July 2013
[4]
Paul Matanga allows his credit customers 30 days in which to pay their accounts.
On 31 July 2013 the trade receivables amounted to $28 000.
The total sales for the year ended 31 July 2013 were:
Cash sales
Credit sales

$
26 000
224 000

(c) (i) State the formula for the calculation of the collection period for trade receivables.

[1]

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(ii) Calculate the collection period for trade receivables. Your answer should be
rounded up to the next whole day.

For
Examiner's
Use

Show your workings.

[2]

(iii) Explain how the collection period for trade receivables may affect Paul Matanga’s
liquidity position.

[2]
[Total: 21]

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3

The following trial balance was extracted from the books of Steven Wright on
30 September 2013.
$
Capital 1 October 2013
Drawings
Premises at cost
Equipment at cost
Provision for depreciation of equipment
Motor vehicle at cost
Provision for depreciation of motor vehicle
Inventory 1 October 2012
Revenue
Purchases
Sales returns
Wages
General expenses
Provision for doubtful debts
Commission received
Trade receivables
Trade payables
Petty cash
Bank
Loan – AB Finance (repayable 2020)

$
90 000

6 520
65 000
30 000
18 000
16 000
7 000
9 000
169 000
132 000
5 000
26 500
3 970
260
1 215
14 200
13 000
290

308 480

4 005
6 000
308 480

Additional information
1

Because of illness, Steven Wright did not value his inventory on 30 September 2013.
His gross profit margin is 25%.

2

On 30 September 2013 general expenses prepaid amounted to $170 and wages of
$750 are to be accrued.

3

During the year ended 30 September 2012 Steven Wright took goods costing $1000 for
his own use. No entries have been made in the accounting records.

4

The loan was received on 1 April 2013 and interest is charged at 6% per annum.

5

The provision for doubtful debts is to be maintained at 2% of trade receivables.

6

Depreciation on equipment is charged at 20% per annum using the straight line method
and depreciation on the motor vehicle is charged at 25% per annum using the reducing
(diminishing) balance method.

(a) Prepare the income statement of Steven Wright for the year ended 30 September 2013.

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Steven Wright
Income Statement for the year ended 30 September 2013

For
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[18]
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(b) Name the accounting principles which Steven Wright applied in each of the following.

For
Examiner's
Use

Maintaining the same percentage of depreciation.

Recording the wages owing and general expenses paid in advance.

Recording goods taken for personal use.
[3]
[Total: 21]

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4

Samira El Badry is a trader. Her financial year ends on 31 August.
The totals of her trial balance on 31 August 2013 failed to agree. The difference was a
shortage on the debit side of $116. This was entered in a suspense account.

For
Examiner's
Use

The following errors were later discovered.
1
2
3
4
5

The purchases returns account had been undercast by $100.
Discount received, $286, had been omitted from the trial balance.
No entry had been made in the business books for goods, $220, taken by Samira for
her own use.
$159 received from Amrik Bhatti had been entered in his account as $195.
Rent paid, $200, had been credited to the rent received account.

(a) Prepare the suspense account in Samira El Badry’s ledger to show the required
entries. Start with the balance arising from the difference on the trial balance.
The account should be balanced or totalled as necessary.
Samira El Badry
Suspense account

[7]

(b) State whether all the errors in Samira El Badry’s books have been discovered. Give a
reason for your answer.

[2]

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(c) Explain why not all the corrections require an entry in the suspense account. Illustrate
your answer with reference to one of the errors listed.

[2]

The following account appeared in Samira El Badry’s purchases ledger.
Tahir Stores Limited account
$
2013
2013
Aug 10 Returns
83
Aug 1 Balance b/d
31 Balance c/d
535
6 Purchases
Carriage
31 Interest
618
2013
Sept 1 Balance b/d

$
400
195
15
8
618
535

(d) Explain the following entries in the above account.
State where the double entry for each transaction would have been made.
(i) August 6 Purchases
Explanation

Double entry

[3]

(ii) August 6 Carriage
Explanation

Double entry

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(iii) August 31 Interest

For
Examiner's
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Explanation

Double entry

[3]

(e) State whether the balance on 1 September 2013 represents an asset or a liability to
Samira El Badry.
[1]
[Total: 21]

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5

(a) (i) State one advantage of being a partner rather than a sole trader.

For
Examiner's
Use

[1]

(ii) State one disadvantage of being a partner rather than a sole trader.

[1]

(b) State why an agreement should be drawn up when a partnership is formed.

[1]

Tony and Carol Chen are in partnership, sharing profits and losses in the ratio 2:1. Their
financial year ends on 31 October.
On 1 November 2012 the balances on their current accounts were:
Tony Chen
Carol Chen

$
14 200 credit
5 100 debit

During the year ended 31 October 2013 the partners made the following drawings:
Tony Chen
Carol Chen

$
10 600
20 400

The following is an extract from their profit and loss appropriation account for the year
ended 31 October 2013.

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Tony and Carol Chen
Profit and Loss Appropriation Account for the year ended 31 October 2013
$
Profit for the year
Interest on drawings – T Chen
C Chen
Interest on capital – T Chen
C Chen
Partner’s salary – C Chen
Profit available for distribution

318
612
4 250
2 000
6 250
15 000

For
Examiner's
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$
43 000
930
43 930

21 250
22 680

(c) Prepare the current account of Carol Chen as it would appear in the ledger for the year
ended 31 October 2013.
Carol Chen
Current account

[5]

(d) Explain the significance of the closing balance on Carol Chen’s current account.

[2]

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(e) On 31 October 2013 it was agreed that Tony Chen would transfer $20 000 from his
current account to his capital account.
Complete the table below to name the account to be debited and the account to be
credited.
account to
be debited

account to
be credited

[2]
(f) Tony and Carol Chen know that relevance is one of the objectives which should be
considered when selecting accounting policies.
Explain what is meant by the term relevance.

[2]
[Total: 14]

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6

Patrick Murphy is a wholesaler. His financial year ends on 30 June. He provided the
following information.
For the year ended 30 June 2013

Revenue
Cost of sales
Expenses

$
220 000
185 900
20 240

At 30 June 2013

Capital employed

110 880

For
Examiner's
Use

(a) Complete the following tables.
Percentage of gross profit to revenue
Formula

Workings to one decimal
place

Answer

Percentage of profit for the year to revenue
Formula

Workings to one decimal
place

Answer

Return on capital employed (ROCE)
Formula

Workings to one decimal
place

Answer

[8]

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Patrick Murphy decided to compare his business results with those of Kelly Limited, another
wholesaler dealing in the same type of goods.
The ratios calculated for Kelly Limited were:
Gross profit as a percentage of revenue
Profit for the year as a percentage of revenue
Return on capital employed (ROCE)

18.3%
5.2%
10.8%

(b) (i) Suggest one possible reason why Patrick Murphy’s gross profit as a percentage of
revenue is different to that of Kelly Limited.

[2]
(ii) Suggest one possible reason why Patrick Murphy’s profit for the year as a
percentage of revenue is different to that of Kelly Limited.

[2]

(c) (i) Explain the importance of the return on capital employed (ROCE).

[2]

(ii) State which business is making the best use of the capital employed.
[1]

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19
Patrick Murphy is aware that even if he compares his results with those of a business
trading in the same type of goods, the information can be misleading.
(d) Explain two other factors Patrick Murphy should consider when comparing his results
with those of a similar business.
1

2

[4]
[Total: 19]

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